Debt/Income Ratio
The ratio of debt to income is a tool lenders use to determine how much money is available for your monthly home loan payment after all your other monthly debt obligations have been fulfilled.
How to figure the qualifying ratio
Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (including loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, and the like.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, use this Loan Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.
AmeriBest Mortgage can walk you through the pitfalls of getting a mortgage. Call us: 3217777277.